I'm looking to suplement my SS & Pension. I checked last year's return on Vanguard Total Bond Market and if I invested $150,000.00 (in IRA) I would have seen a return of approximately $7,500.00 in distributions. Could I expect similiar returns in coming years? After the $150,000 is invested I would have $500,000  remaining in IRA (Target Retirement fund 2005, 90% & International Fund, 10% & $75,000 in taxable accounts I wouldn't have to touch these funds until age 70 1/2 (now 64).

Any help would be greatly appreciated.

Thanks,

Tinker

hi tink -

also like you looking to supplement my ret/pens with dividend pmts

not sure if what I do is right/wrong/indifferent ( tried broker advice & I do just as well solo)

I try to stay in stocks that pay a div & don't rock & roll so much w/ mkt

(really love the monthly ones cuz easier for me to keep track of but they seem to tank or switch to qtr)

funds are spread all over the place & pay ok

I'd also be interested in input from the financial cyber-gurus out there

"I would have seen a return of approximately $7,500.00 in distributions. Could I expect similiar returns in coming years?"

Tinker,

Not necessarily.

If you don't understand how bonds/bond funds work, at the very least you ought to go to the Morningstar School and read about them. You can find the tutorial by clicking on Personal Finance at the top of this page. When that window comes up, on the left side of the screen in the Personal Finance Box, you will see Bonds and Bond Funds. Click on that and read.

The short answer to your question is that when interest rates are cut those cuts will eventually manifest themselves in your bond funds (in their distributions) when the underlying holdings of those funds are issues with the lower rates. Conversely, when rates go up eventually so also will your distributions.

If you want to see history in action go to the Vanguard website and bring up the Total Bond Market fund by clicking on Research Funds and Stocks. When you have the Total Bond Fund in front of you click on Performance, scroll down and click on See Cumulative, Yearly, Quarterly Returns. In that window you will see the Income Return in percentages going back to 1993. 

A rule of thumb with a bond fund such as the Total Bond Market Index is that if you hold that fund for as long as the average duration of the fund's underlying holdings - in this case about 4 1/2 years - your Income Return will be the average of the Income Returns listed for that period. So, take any five year average of the Income Percentages shown and that will give you an idea of the distributions for the Total Bond Market Index fund for whatever period you choose. Then, see what the interest rate climate was for those years.

Beginning in 2000 rates were relatively high. Then the Fed cut rates for several years running. By 2007 they were raised again. And most recently you've seen them cut. 

One thing is certain. Just as no one can predict how the stock market will perform neither can one predict what interest rates are going to be.  

Hope this helps.

Billym

 

If you are invested in a target retirement fund, typically those shift toward bonds as you get closer to your target retirement date.  So if you invest $150k of your $775k total in bonds when you already have $450k in a target retirement fund, that may put you more heavily in bonds than you want.  What is your desired percentage of your assets in bonds? 

IMO, now is not the greatest time to shift into taxable bonds as I think they are priced at or close to their peak.  I think we are going to see interest rates rise in 2009 and that will cause bond prices to drop.  So I think if you buy now, you will be buying them when they are high.  Munis on the other hand, have seen some recent market dislocations with the insurers and their problems and the auction rate market drying up.  Some munis now are a good buy.  But of course, you would not want those in your IRA as they would provide you no tax advantage.  They might be a good option for your taxable account depending on your tax bracket.

I would take a look at preferred stocks, too.  The Wall Street Journal recently ran an article dissing them, but you can get some pretty darn safe preferreds at a discount to par right now and with the discount, it boosts the yield considerably.  Quantumonline.com lists many preferreds.  Educate yourself about the risks - for instance, unlike a bond, a preferred is not in default if the issuer suspends the dividend - before you buy.  I have been happy so far with my preferreds.

Think you made the wise move into 90% in Target Funds..that is if your a Novice to ave. knowledged investor..as I am.. and thinking of the Reality of the future..As i get older, be less able to manage as well and what if  get a stroke, etc.? Who's going to take over the Helm?

TE> Tax Effecientcy was my Objective.. And those target funds have it.. at least TRP's with Ave Lipper ranking  of 4 out of 5..And  Balanced Funds Like OAKBX as well...( And boy, do those " ChFP's and other Pro's" Hate Them...  LOL..)

As for the rest? I was allocating some in other Asset /Sectors classes but gave that up too and just went with a Fund that did all that for me> like a FAIRX or pick anyother that allocate into Foreign, etc..( D&C, American, etc. )

And If have more than enough? Take a Flyer and add a CGMFX & CGMRX fund..

Bob Brinker's Income port consist of 4 Bond Funds and is about as good as anyone else's without requiring alot of Work..

And , last but not least? Time is against us.... As we get older, we ain't as sharp as we think we are and even 1 mistake can be costly..Thus Know Thy Limitations..

If those target funds Rtns will get the Job done? Stay with them and enjoy the Grandkids and go Fishing..

2nd choice? Those Balanced funds..

Good Luck!